ECLAC warns of climate crisis in Latin America and the Caribbean and predicts lower growth in 2023 and 2024

New annual report "Economic Survey of Latin America and the Caribbean, 2023. Financing a Sustainable Transition: Investing for Growth and Addressing Climate Change" by the Economic Commission for Latin America and the Caribbean.
 

A negative international scenario, regional complexities, and the threat of the climate crisis complicate growth prospects in the Latin American and Caribbean region. The average GDP growth in Latin America and the Caribbean will reach 1.7% this year, according to the latest ECLAC study. By 2024, the figure would decrease to 1.5%.

In South America, a 1.2% growth is expected this year; in Central America and Mexico, GDP would increase by 3%; and in the Caribbean (excluding Guyana) the rise would be of 4.2%, according to the report. Employment would also be affected: job creation would slow down in the coming months and would reach 1.9% in 2023 and 1.1% in 2024.

ECLAC’s Executive Secretary, José Manuel Salazar-Xirinachs, pointed out that the forecast "could be aggravated by the negative effects of a worsening of climate shocks, if the investments in adaptation and mitigation to climate change required by the countries are not made".

The climate impact is concerning for the region. ECLAC states that "in 2050, the GDP of a group of six countries could be between 9% and 12% lower than that corresponding to a scenario of trend growth" if investments are not made to combat the crisis. The study adds: "The amount of additional investment required is exceptionally large, between 5.3% and 10.9% of GDP per year. This would represent a significant increase compared to current levels of investment".

In this regard, Salazar-Xirinachs adds that "a significant increase in concessional financing is required to sustain investment trajectories over time. These efforts must be accompanied by domestic macroeconomic policies that favor resource mobilization".
On a global scale, trade levels below historical averages and high interest rates in industrialized countries, which make financing more expensive for other nations, complicate the picture.

The study outlines four areas for action to address the macroeconomic consequences of climate change. These are:

- Fiscal space, including tax revenue, public spending for sustainable projects, and green bonds
- Financial and foreign exchange risk management
- Concessional and development finance, for example, through multilateral banks
- Debt relief mechanisms, with the possibility of restructuring, clauses to address natural disasters, and compliance with sustainability objectives

In turn, ECLAC calls for strengthening public and private investment in Latin America and the Caribbean, which is low compared to industrialized economies.

Author: Marina Vanni